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The supercommittee sell-off: Dow loses almost 250

NEW YORK (AP) — The stock market was not exactly surprised that
a so-called supercommittee in Congress failed to reach a deal to
cut the federal budget deficit. But since summer, investors have
sold at the first hint of trouble.

So on Monday, they sold big. The Dow Jones industrial average
lost almost 250 points on a day when investors despaired over debt
problems at home and abroad.

Members of the special committee, created in August to come up
with $1.2 trillion in deficit cuts over 10 years, indicated all day
that there would be no deal. After the market closed, the
committee's bipartisan leadership made it official.

"They're essentially giving up," said Robert Robis, head of
fixed income macro strategies at ING Investment Management.

The supercommittee stalemate is supposed to trigger automatic
spending cuts across the government, but there were already hints
that Congress would find a way around them. Analysts say that could
lead to another downgrade of the U.S. credit rating.

In addition, the failure raises the question of how a gridlocked
Congress will find a way to renew a cut in the Social Security tax
or agree on whether to extend long-term unemployment benefits.

Congress passed the tax cut last December for one year, and some
lawmakers support extending it through 2012 because economic growth
remains weak. Both measures would put cash in the pockets of
Americans, who can spend it and help the economy grow.

The stalemate also shows lawmakers may not be able to make
progress on anything budget-related in the coming months, said
Robert Pavlik, chief market strategist with Banyan Partners LLC in
New York.

"It shows that there's a bigger problem at hand, and if they
can't work to resolve these relatively small yet meaningful issues,
what's going to happen if we get into a situation like Europe is
in?" he said. "And we're kind of headed there."

The result was another day of heavy selling in a market that has
grown used to big swings. The Dow finished down 248.85 points, or
2.1 percent, at 11,547.31. At its low point of the day, the Dow was
down 342.

Volatility seized the stock market in late July, when Congress
was wrestling with whether to raise the limit on how much the
federal government can borrow.

The Dow rose or fell 100 points or more on 15 trading days in
August, 16 in September and 15 in October. Monday was its 10th
triple-digit move this month, with six trading days to go.

"People are getting so short-term oriented now that all they
know is how to make day trades," he said.

The selling swung the Dow from a gain for the year to a loss,
the first time that has happened in a month.

In Europe, Moody's, a prominent ratings agency, warned that
France could face a downgrade because the debt crisis in Europe has
pushed borrowing costs higher for the French government. For now,
France has a rating of AAA, the best.

One European country after another has fallen into crisis
because of debt. Wary of the ability of countries to pay back their
loans, bond investors have insisted on higher returns on national
bonds, pushing borrowing costs to dangerous levels.

Stock indexes fell 3.4 percent in both Germany and France -
bigger declines than in the United States. Germany and France are
the two largest economies in Europe.

Investors still see American debt as safe, despite the failure
of the supercommittee. On Monday, the yield on the benchmark
10-year Treasury note fell to 1.97 percent. It traded at 2.01
percent late Friday.

Bond yields move down when bond prices go up. The higher demand
for U.S. bonds Monday was a sign that investors believe in their
safety.

Last week's steepest falls were Wednesday and Thursday, after
Fitch, another ratings agency, warned that the European debt crisis
could hit the largest American banks. The S&P 500 is down more than
5 percent for the year. On Nov. 15, it was still up slightly.

The declines Monday were broad. Energy and technology stocks
lost the most. All 30 stocks in the Dow average fell, led by Boeing
Co. with a 4.7 percent decline. The dollar rose along with U.S.
Treasury prices.

Gilead Sciences Inc. stock plunged 9 percent, the most in the
S&P 500. The company plans to buy drug developer Pharmasset Inc.
for $11 billion. Pharmasset, which has an experimental hepatitis C
drug in late-stage clinical trials, jumped almost 85 percent.

Alleghany Corp. fell almost 7 percent after the property and
casualty insurer said it had agreed to buy the reinsurance company
Transatlantic Holdings Inc. for $3.4 billion. Transatlantic edged
up almost 1 percent.

Irish electronics company Cooper Industries PLC bucked the
market trend, rising 2.6 percent, after S&P said it will be added
to the S&P 500 index. Stocks often rally when they are added to
major indexes, because investment funds that mirror the indexes
must buy them.